What Apple needs to maintain control of the tablet market

Apple’s iPad makes up 65 percent of customer demand for tablets, according to a new ChangeWave survey that shows interest in tablets overall up 130 percent. But for the first time, another single competitor has emerged to catch a very healthy percentage of shoppers’ attention: the Kindle Fire.

Amazon’s tablet was the device of choice for 22 percent of the 3,043 customers polled by ChangeWave for its latest survey. The next closest device was Samsung’s Galaxy Tab, with just 4 percent of those surveyed expressing a desire to pick up that product. The Kindle Fire’s emergence as a strong second to Apple’s iPad is mostly bad news for other Android-based competitors, and less of an issue for Apple, which currently enjoys around 67-percent market share, but that doesn’t mean it should quietly allow the Fire to dig itself in as the budget-conscious shopper’s tablet of choice.

How Apple can put out the Fire

The easy answer, of course, is to make a cheap iPad, but that’s not something Apple will do easily or without a very specific, measured approach. Apple’s brand cachet and success depend on consumer perception of its products as high quality; just pulling things out until a smaller iPad resembles a Fire in terms of specs but runs iOS isn’t likely an option. That said, Apple also isn’t afraid to take a good idea from the competition and make it better in order to move hardware. That’s what I think it’ll do in this case.

Take away the huge price gap

Amazon’s Fire is really appealing because it provides cheap access to content acquired and stored in Amazon’s extensive ecosystem of music and movies, and its growing AppStore. The hardware is really secondary to those considerations, and likely accounts for why Amazon is willing to sell it so cheaply.

If Apple wants to regain its absolute dominance of the tablet market, it needs to take price off the table, but also to avoid setting itself up for the kind of criticism Amazon and other low-cost tablet makers face because of corner-cutting. It’s a tricky balance to strike, but Apple has a lot of advantages that could make it possible, chief among them being Tim Cook and his masterful control of the component supply chain. And Apple doesn’t need to close the gap entirely. It needs to bring an iPad close enough that the Kindle Fire’s faults seem like unwarranted sacrifices for what you save.

Apple can go cheap with few sacrifices

Amazon is taking a big risk on a relatively unproven market (7-inch tablets), and in doing so, it probably can’t achieve the parts-ordering volumes Apple could manage. That should allow Apple to eke out more profit per device even at a much-reduced price point. Apple is also making great strides in achieving big price breaks by leveraging older hardware; the free (on contract) 3GS is a great example. A smaller iPad would automatically save on display costs, and Apple can also save money using the older A4 processor (or an A5 if it debuts alongside a next-gen A6 for the existing iPad).

It will likely be difficult for Apple to get Kindle-Fire-cheap with a product it can stand behind, but the entry-level iPod touch recently hit the same $199 mark, and a similarly specced, slightly larger device at $249 (same price as the Nook Tablet) or $299 isn’t too much of a stretch to imagine. It would likely mean the death of the iPod touch in terms of cannibalized sales, but Apple is famously willing to release forward-looking products even if they might hurt past top producers.

Ecosystem plus

Apple’s content ecosystem can go toe-to-toe with Amazon’s, especially in international markets where lots of Amazon’s content isn’t available. ICloud and access to past iTunes purchases help make the differences between the two minimal, and despite Amazon’s big advantages with books, Apple still wins in terms of digital movie and music sales. If a smaller, cheaper iPad can provide access to that content, with fewer hardware/software downsides, it’ll win over customers, even with a price disadvantage.

Apple also still has a huge app advantage. That, plus value-add features like AirPlay, iMessage and other things iOS provides that the competition currently doesn’t, will be enough to win back Apple customers just looking for a quality 7-incher to fill out their gadget lineup. In terms of the early adopter crowd, that alone could pay big dividends.

Groundwork

Apple has the elements of a low-end market play in place: the pedigree of the iPod touch, its recent willingness to target mid-market by leveraging older tech, the lessons and supply chain control it has amassed in making the iPad a huge success, and the market-leading content ecosystem that continues to drive and be driven by its hardware device purchases.

Amazon’s ability to win out over other Android devices and take a big chunk of tablet interest by undercutting Apple on price might not even bother Cupertino. If it can’t work out how to make a competing device with a reasonable profit margin, it won’t bother. But if it can, that’s when we’ll see the real sparks fly in the tablet mark